Wednesday, January 16, 2019

Representative Eshoo's New Bill Would Slow 5G Deployment

On January 15, 2019, Representative Anna Eshoo (D-CA) introduced the "Accelerating Wireless Broadband Development by Empowering Local Communities Act of 2019" (H.R. 530), which would overturn FCC rules that preempt local government regulations on the deployment of 5G infrastructure.

As I illustrated in a September 2018 infographic, the FCC's Wireless Infrastructure Order facilitated 5G deployment by reducing unnecessary regulatory barriers and limiting unjustified fees imposed by local governments. One study by CMA Strategy found that the FCC’s Order will increase broadband infrastructure investment by $2.4 billion and deploy next-generation access to an additional 1.8 million homes and business, of which 97% will be concentrated in rural and suburban areas.
By overturning the FCC's Order, Representative Eshoo's bill would enable local governments to levy excessive fees and lengthy regulatory processes on broadband providers, slowing the deployment of 5G technology and delaying the creation of 5G’s massive economic benefits.

Thursday, January 10, 2019

Maryland Should Reduce Regulations and Fees That Inhibit Broadband Deployment

On January 2, 2018, I published a blog suggesting that Maryland Governor Larry Hogan should reestablish the Regulatory Reform Commission and should specify as one of its tasks identifying unnecessary taxes and fees. More specifically, the Commission and the Maryland General Assembly, which convenes this week for its 2019 legislative session, should focus on reducing regulatory and tax burdens that stifle broadband deployment and slow the delivery of next-generation wireless services. According to two recent reports, Maryland has one of the most burdensome regulatory processes with regard to broadband deployment and some of the highest wireless tax rates in the country.
A new report by the R Street Institute ranks Maryland 45th out of 50 in terms of how conducive its laws are to broadband deployment. Importantly, Maryland presently does not require localities to adopt "shot clocks" to ensure timeliness for the processing of applications or to employ hard caps on fees pertaining to accessing public rights-of-ways, acquiring construction permits, or installing pole or collocation attachments. For example, the fees localities charge for public rights-of-way access are not required to be non-discriminatory or based on an estimation of costs, meaning local governments can charge whatever they want and can charge different prices to different providers despite granting the same level of access. Whether a wireless or wireline provider of broadband access, building and upgrading a network requires a significant number of permits from the local government. Without shot clocks and without hard caps on fees, the regulatory costs imposed by impediments associated with the local government approval process slows broadband deployment.
Deploying communications networks includes heavy capital investments from broadband providers. If fees are excessively high, it will discourage competition from small providers who cannot afford access. Also, if the regulatory costs differ significantly among jurisdictions, it could discourage providers from upgrading networks in certain localities. Although there is high demand in a relatively densely-populated, wealthy state like Maryland, the margin between profit and loss is very small in the dynamically competitive broadband market.
In May 2015, Governor Hogan signed House Bill 541, which required the Public Service Commission to convene a workgroup to study attachments to utility poles in Maryland. The workgroup found in a January 2016 study that the “terms and conditions for pole attachments are adequate” and the “rates charged to pole attachers are reasonable.” But with the emergence of the 5G revolution, small cell deployment in a populated locality will require hundreds if not thousands more pole attachments than 4G, meaning the existing terms and conditions likely are outdated. With 5G deployment, wireless providers will deploy small cells on already existing buildings or utility poles, a practice called “collocation.” Without shot clocks for the review of collocation applications and without hard caps on the fees localities can charge, the regulatory uncertainty will slow 5G investment in Maryland. In 2018, Maryland policymakers introduced small cell legislation to minimize these regulatory barriers and streamline 5G deployment, but the Senate and House bills failed to pass.
If Maryland wants to continue to be considered a prime location for innovative businesses, it should adopt rules that give guidance to local governments regarding streamlining the application and approval processes and charging cost-based fees that properly compensate the local governments without slowing 5G deployment.
Moreover, according to a recent report by the Tax Foundation, Maryland, at an average rate of 13.89%, has the 15th highest combined state and local wireless tax rate in the United States. This means its wireless tax rate is 2.31 times the size of its general sales tax of 6%, which is the 9th highest disparity multiple in the U.S.
Of course, some localities impose higher tax rates than others. In Baltimore, residents pay an effective tax rate of about 25% for wireless services. At the end of 2017, over 68% of all poor adults had wireless-only voice service and nearly 24% of Baltimore’s population falls below the poverty level. Additionally, more and more consumers are substituting mobile wireless broadband for fixed broadband. And while this trend is occurring across all demographics, it is particularly prevalent among low-income and minority consumers. About 31% of U.S. adults making less than $30,000 a year are wireless-only with regard to broadband service. And 35% of Hispanic adults and 24% of black adults also are wireless-only. Maryland’s relatively high wireless tax rates unnecessarily raise the price of wireless services and harm all consumers, but they disproportionately harm low-income and minority consumers.
The Regulatory Reform Commission’s December 2015 report recommended streamlining application review processes, reducing fees and payment frequency, and expanding minority and disadvantaged business opportunities. These recommendations have not been implemented yet with regard to the taxation and regulation of broadband and wireless communication services.
As stated in last week's blog, Governor Hogan’s regulatory reform efforts have improved Maryland’s business climate and its overall fiscal condition. To continue this progress, Governor Hogan should reestablish the Regulatory Reform Commission and task it with identifying more regulations, taxes, and fees that discourage economic activity. The communications and broadband marketplace would be a good place to start.

Thursday, January 03, 2019

Copyright Industries Contributed Significantly to the U.S. Economy in 2017

Wednesday, January 02, 2019

Governor Hogan Should Reestablish the Regulatory Reform Commission

At the beginning of each year, for the past three years, Free State Foundation President Randolph May and I have published a Perspectives from FSF Scholars addressing the meaningful progress made by Governor Larry Hogan’s Regulatory Reform Commission (RRC). In December 2017, the RRC published its final report identifying 844 outdated or unnecessary regulations over its three-year term, which Governor Hogan ultimately eliminated or altered in some way. Now that Governor Hogan has been reelected for a second term, he should reestablish the Commission with the goal of achieving further regulatory reform over the next four years.

In January 2016, Randolph May and I commended Governor Hogan for creating the RRC, and we suggested ways Maryland could reform its regulatory process. Specifically, we proposed that Maryland consolidate its twenty departments into just eight. We also suggested creating a “sunset” date for all new regulations. This would require that regulations expire after a certain period of time if they are not affirmatively readopted by the sunset date.
In January 2017, we applauded the RRC for identifying 187 regulations that it found “redundant, unreasonable, unnecessary, unduly burdensome or obsolete.” We also recommended that Maryland adopt a central office within the executive branch to review regulations before they are promulgated to determine whether the projected benefits outweigh the costs – similar to the Office of the Information and Regulatory Affairs (OIRA) at the federal level. The office certainly doesn't need to be large, but it should be led by an economist with expertise in cost-benefit analysis.
In January 2018, we highlighted the RRC’s final report, which recommended 657 changes to outdated or unnecessary regulations that Governor Hogan ultimately accepted. And we took the opportunity to repeat some of our earlier proposals for process reform in Maryland.
Governor Hogan made a worthy effort during his first term to eliminate unnecessary or outdated regulations as part of his effort to stimulate Maryland's economy and improve its business climate. As I noted in an October 2018 blog, Governor Hogan’s tax and regulatory reform had a positive impact on Maryland’s overall fiscal condition. And according to some studies, Maryland’s business climate has improved over the past several years relative to other states. (See here and here.)
Although the Regulatory Reform Commission did a good job identifying nearly 850 regulations that were outdated or unnecessary and Governor Hogan wisely accepted the Commission’s recommendations, there certainly are areas where Maryland can further improve, like reducing occupational licensing requirements. Now that Governor Hogan will be returning to Maryland’s gubernatorial seat for another four years, he should reestablish the Regulatory Reform Commission and direct the Commission to continue its work searching for unnecessary and costly regulations to eliminate or modify.
The RRC also should be tasked with identifying unnecessary taxes and fees that stifle competitive entry and artificially raise prices for consumers. Given the positive impact that broadband and wireless services have on Maryland’s economy, the RRC particularly should focus on eliminating or reducing excessively high taxes and fees that slow broadband deployment and harm consumers.
In a forthcoming blog, I will discuss how Maryland’s burdensome regulations and fees stifle broadband deployment and how its exorbitantly high wireless tax rates negatively impact consumers.

Thursday, December 13, 2018

T-Mobile-Sprint Merger Would Benefit Resellers and Hybrid Services

In the Free State Foundation’s comments submitted to the FCC regarding the proposed merger between T-Mobile and Sprint, FSF rebutted claims that the potential merger would harm resellers, or mobile virtual network operators (MVNOs). FSF scholars showed that a combined T-Mobile and Sprint would accelerate 5G deployment, giving MVNOs a third nationwide option for 5G access in addition to Verizon and AT&T. Tracfone, the nation’s largest MVNO, made similar sentiments in its comments, stating that a merged T-Mobile and Sprint would increase mobile broadband access in rural areas, where competition from a third provider is lacking.
In their comments, FSF scholars examined T-Mobile and Sprint’s spectrum holdings, capital investments, and financial obligations and determined that the two companies, alone, would not be able to compete with Verizon and AT&T with regard to timely deployment of 5G networks:  
It appears unlikely that T-Mobile and Sprint separately would have the capital resources necessary to invest in and timely deploy nationwide 5G networks that could compete effectively with AT&T and Verizon. Furthermore, build-out and operation of a next-generation mobile wireless network involves significant costs in migrating subscribers onto the new network and closing down older-generation networks. Such migration would be particularly challenging to T-Mobile and Sprint separately given their relatively smaller pool of financial and spectrum resources.
In other words, the T-Mobile-Sprint merger would accelerate small cell deployment and increase the likelihood of consumer access to three or more nationwide 5G providers. But MVNOs, which purchase network capacity from mobile network operators (MNOs), like Verizon and AT&T, and resell the service rather than building out their own facilities, also would benefit from having access to an additional nationwide 5G network.
FSF’s comments said the following:
Based on observations that T-Mobile and Sprint are the largest wholesalers of mobile wireless network capacity to mobile virtual network operators (MVNOs) – or “resellers” – it has been claimed that the reduction of one wholesaler could raise wholesale prices for MVNOs and therefore harm consumers by causing their retail subscribers’ prices to rise. However, given the competitive conditions of the wireless market identified above – including the new T-Mobile’s likely enhanced ability to compete with wireless market leaders AT&T and Verizon – it is quite unlikely that wholesale prices would significantly increase post-merger. A rigorous economic analysis should be required to demonstrate that significant and non-transient price increases are likely to occur before the Commission should credit such an argument as a possible merger related concern. And even assuming such a demonstration were made, it is unlikely that concern would outweigh the 5G and other potential benefits of the proposed merger.
In September 2018, Tracfone, the largest MVNO in the U.S. with 22 million customers, announced that it supports the T-Mobile-Sprint merger for this exact reason. In comments submitted to the FCC, Tracfone said:
While today’s wholesale market for MVNOs is generally competitive, the existing four nationwide MNO’s from which TracFone can purchase network capacity are not equivalent alternatives in all markets. In rural areas, T-Mobile and Sprint historically have not offered sufficient coverage and/or speeds in these geographic pockets of the United States.
With the merger of T-Mobile and Sprint, and the resulting more rapid deployment of a nationwide 5G network with broader coverage, greater capacity, higher throughput and lower latency, the wholesale market place will be more competitive with three full service competitors, rather than two. The increase in competition should have the greatest effect in rural areas. The resulting excess capacity would be available for MVNOs in these areas as a third option that has not been available in the current marketplace.
Moreover, in a recent Perspectives from FSF Scholars, Randolph May and I discussed how cable providers are now offering mobile services as hybrid mobile network operators (HMNOs) that use a combination of their own facilities and leased networks. (Comcast’s “Xfinity Mobile” is one example.) Cable providers, too, would benefit from more options for nationwide 5G networks when offering their hybrid mobile services.
As HMNOs and MVNOs continue to use a facilitates-based MNO to deliver their own mobile services, the T-Mobile-Sprint merger would provide cable providers and MVNOs with a third option for a 5G network in addition to Verizon and AT&T.

Tuesday, December 11, 2018

Robert Crandall: Legislators and Regulators Must Exercise Humility

In August, Dr. Robert Crandall, a member of the Free State Foundation’s Board of Academic Advisors, authored a report titled “The Effects of Rapid Technological Change on Regulatory Policies in the Communications Sector.” Dr. Crandall discusses how regulation in industries characterized by rapid technological change often leads to counterproductive constraints on firms.

The report examines four cases studies of regulation in the communications sector:
  • The artificial distinction between “local” and “long-distance” calling in telecommunications regulation
  • The 1996 Telecommunications Act’s costly failure with regard to local network unbundling
  • Deregulation, reregulation, and deregulation of cable television rates
  • The AOL-Time Warner Merger

Dr. Crandall uses these examples to explain how well-intentioned regulation can lead to unintended consequences that have detrimental effects on consumers, like foregone investment in broadband infrastructure. He states:

In each of these examples of policymaking in the communications sector, technological change – and the associated market changes – helped to render a policy decision unnecessary or irrelevant. In each case, legislators and regulators could not predict the future changes in market conditions brought about by changing technologies and consumers’ adaptation to these changes, leading to serious policy errors with adverse effects on consumer welfare.

Dr. Crandall concludes that regulators should be careful not to impede investment in new technologies, like 5G, through regulatory interventions. And in the context of mergers, agencies generally should not impose regulatory conditions of approval because oftentimes technological innovation quickly renders the conditions outdated or irrelevant.

As I stated in a blog last week, U.S. mobile data traffic is projected to grow fivefold from 2017 to 2022 and the deployment of 5G technology is expected to create 3 million jobs, $275 billion in investment, and $500 billion in annual economic activity. In order for consumers to enjoy these projected economic benefits, as Dr. Crandall states, legislators and regulators must exercise humility when considering laws and regulations in the dynamic broadband marketplace.

Monday, December 10, 2018

FCC Proposal Keeps Free From Unnecessary Regulation and Spam

At its December 12 meeting, the FCC will vote on a sensible proposal to keep popular wireless messaging services free from public utility regulation. By declaring texting and other wireless messaging services are Title I "information services," the FCC will ensure messaging service providers have flexibility to protect consumers from spam and other unwanted messages. 

For several yearsFree State Foundation President Randolph Mayand I have urged the Commission, in comments filed with the agency and in publications, to declare text messaging services to be lightly-regulated Title I information services. We applaud the Commission's proposal, finally, to provide deregulatory certainty for messaging services.

In today's competitive communications marketplace, wireless service providers routinely offer consumers messaging services bundled with voice and mobile broadband services. Text messaging or short messaging services (SMS) typically involve person-to-person transmission of texts up to 160 characters long. Multi-media messaging services (MMS) are person-to- person transmission of photos or video clips. The popularity of wireless messaging services is reflected in CTIA's estimate that, in 2017, American consumers sent a combined 1.77 billion SMS and MMS messages. 

As the Commission's draft proposal states: "The Communications Act, as amended, divides communications services into two mutually exclusive types: highly regulated 'telecommunications services' and lightly regulated 'information services.'" The Commission proposes to declare that SMS and MMS wireless messages meet the statutory definition of Title I information services because they involve the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications. 

For starters, when SMS and MMS messages are sent by users, they are routed through servers on mobile networks, stored on those networks, and forwarded to the recipients when their devices are able to receive them. Thus, the proposal finds: "This storage and retrieval capability is analogous to email service, which has been recognized under Commission precedent as an information service and similarly involves storage and retrieval functionality." 

Additionally, the Commission rightly recognizes adoption of its proposed Title I classification determination "will empower wireless providers to continue their efforts to protect consumers from unwanted text messages." Pointing to an estimated 2.8% spam rate for SMS compared to an over 50% spam rate for email, the Commission draft concludes:

[C]ontinuing to empower wireless providers to protect consumers from spam and other unwanted messages is imperative in light of the fact that the growth and popularity of SMS and MMS wireless messaging services have made them an attractive target for bad actors and spammers.

A Title II declaration would make it more difficult to combat unwanted messages. As the proposal says: "[I]n the context of voice service, under Title II, the Commission has generally found call blocking by providers to be unlawful, and typically permits it only in specific, well-defined circumstances." Under a Title II regime, messaging service providers would be restricted in their ability to stop spam from reaching consumers, thereby flooding consumers with messages they don't want.   

Finally, no good reason exists for increased regulation. SMS and MMS services emerged from and thrive in a competitive, essentially unregulated environment. Consumers have choices among competing wireless providers offering messaging service. Data cited in the draft Communications Market Competition Reportindicates that at the end of 2017, 92% of the population had access to at least four 4G LTE providers. Also, over-the-top applications and email are other popular means of communication, providing further competitive market checks on service provider behavior. Meanwhile, messaging service providers are subject to the Federal Trade Commission's authority to take action against unfair and deceptive trade practices. Antitrust is another available resource for safeguarding competition in the market. 

The Commission should adopt its proposed declaratory ruling on text messaging in order to preserve a light-touch regulatory environment and to allow service providers to continue to prevent consumers from getting spammed.